I1 H.R.5371 - Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (https://www.congress.gov/bill/119th-congress/house-bill/5371)

 

Carlos M. Pelaez

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025.

 

I The Shutdown of the Government from December 22, 2018 to January 25, 2019

 

NOTICE There was a shutdown of the government of the United States (An explanation of the shutdown is: https://www.crfb.org/papers/government-shutdowns-qa-everything-you-should-know). The Office of Personnel Management has issued “Guidance for Shutdown Furloughs (https://www.opm.gov/policy-data-oversight/pay-leave/reference-materials/guidance-for-shutdown-furloughs-sep-28-2025/?). The shutdown will interrupt the critical data of the economy generated by the Bureau of Economic Analysis https://www.bea.gov/ on GDP and Personal Income and the Bureau of Labor Statistics https://www.bls.gov/ on Employment, Labor Market and Consumer/Producer prices. The Federal Reserve also must interrupt its industrial production report (G.17 October 17th release delayed

“The industrial production indexes that are published in the G.17 Statistical Release on Industrial Production and Capacity Utilization incorporate a range of data from other government agencies, the publication of which has been delayed as a result of the federal government shutdown. Consequently, the G.17 release will not be published as scheduled on October 17, 2025. The Federal Reserve will announce a publication date for the G.17 release after the publication dates of the necessary source data become available. https://www.federalreserve.gov/feeds/g17.html).  There will be a long lag in updating the data even after the suspension of the shutdown in the future. The Wall Street Journal October 9, 2025, “Federal Government Recalls Workers to Produce Key Inflation Report.“ Inflation data are required for Cost-of-Living Adjustment (COLA) for Social Security. This blog can only be posted again after data updates are available.

CPI prices increased 3.0 percent in the 12 months ending in Sep 2025. The Annual Equivalent rate from Jul 2025 to Sep 2025 was 3.7 percent in the episode of shifting energy sources; and the monthly inflation rate of 0.3 percent annualizes at 3.7 percent. Energy Services Prices increased 6.4 Percent in 12 Months ending in Sep 2025, Decreased at Annual Equivalent 4.7 Percent in Jul 2025-Sep 2025 and decreased 0.7 Percent in Sep 2025 or minus 8.1 percent Annual Equivalent. Consumer at Home Food Prices increased 2.7 Percent in 12 Months Ending in Sep 2025 and increased at Annual Equivalent 3.2 Percent in Jul 2025-Sep 2025 and increased 0.3 Percent in Sep 2025 that annualizes at 3.7 Percent. US Manufacturing Underperforming Below Trend in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide, Stagflation, Global Recession Risk, Worldwide Fiscal, Monetary and External Imbalances, World Cyclical Slow Growth, and Government Intervention in Globalization, US Government Shutdown

 

Note: This Blog will post only one indicator of the US economy while we concentrate efforts in completing a book-length manuscript in the critically important subject of INFLATION.

 

An extremely important analysis of United States fiscal future is provided by N. Gregory Mankiw, “The Fiscal Future: 17^th Annual Martin Feldstein Lecture, 2025 (https://www.nber.org/sites/default/files/2025-07/Martin%20Feldstein%20Lecture%202025%20Final%20%281%29.pdf). The lecture focuses on “the stance of fiscal policy and the path of government debt.”

 

            The Congressional Budget Office analyzes the shutdown of the government from Dec 28, 2018 to Jan 25, 2019 (https://www.cbo.gov/publication/54937):

“CBO has estimated the effects of the five-week partial shutdown of the government that started on December 22, 2018, and ended on January 25, 2019. This report presents CBO’s findings, which include the following:

• CBO estimates that the five-week shutdown delayed approximately $18 billion in federal discretionary spending for compensation and purchases of goods and services and suspended some federal services.
• As a result of reduced economic activity, CBO estimates, real (that is, inflation-adjusted) gross domestic product (GDP) in the fourth quarter of 2018 was reduced by $3 billion (in 2019 dollars) in relation to what it would have been otherwise. (Such references are in calendar years or quarters unless this report specifies otherwise.) In the first quarter of 2019, the level of real GDP is estimated to be $8 billion lower than it would have been—an effect reflecting both the five-week partial shutdown and the resumption in economic activity once funding resumed.
• As a share of quarterly real GDP, the level of real GDP in the fourth quarter of 2018 was reduced by 0.1 percent, CBO estimates. And the level of real GDP in the first quarter of 2019 is expected to be reduced by 0.2 percent. (The effect on the annualized quarterly growth rate in those quarters will be larger.)
• In subsequent quarters, GDP will be temporarily higher than it would have been in the absence of a shutdown. Although most of the real GDP lost during the fourth quarter of 2018 and the first quarter of 2019 will eventually be recovered, CBO estimates that about $3 billion will not be. That amount equals 0.02 percent of projected annual GDP in 2019. In other words, the level of GDP for the full calendar year is expected to be 0.02 percent smaller than it would have been otherwise.
• Underlying those effects on the overall economy are much more significant effects on individual businesses and workers. Among those who experienced the largest and most direct negative effects are federal workers who faced delayed compensation and private-sector entities that lost business. Some of those private-sector entities will never recoup that lost income.
• All of the estimated effects and their timing are subject to considerable uncertainty. In particular, CBO is uncertain about how much discretionary spending was affected by the partial shutdown, how affected federal employees and contractors adjusted their spending in response to delayed compensation, and how agencies will adjust their spending on goods and services now that funding has resumed.

In CBO’s estimation, the shutdown dampened economic activity mainly because of the loss of furloughed federal workers’ contribution to GDP, the delay in federal spending on goods and services, and the reduction in aggregate demand (which thereby dampened private-sector activity).

CBO’s estimates do not incorporate other, more indirect negative effects of the shutdown, which are more difficult to quantify but were probably becoming more significant as it continued. For example, some businesses could not obtain federal permits and certifications, and others faced reduced access to loans provided by the federal government. Such factors were probably beginning to lead firms to postpone investment and hiring decisions. In addition, risks to the economy were becoming increasingly significant as the shutdown continued. Although their precise effects on economic output are uncertain, the negative effects of such factors would have become increasingly important if the partial shutdown had extended beyond five weeks.”

 

            J.P. Morgan provides analysis of the government shutdown (https://www.jpmorgan.com/insights/global-research/current-events/government-shutdown#section-header#0) that includes:

1. The delay of availability of economic data, on employment and prices, can make the decisions of the FOMC (Federal Open Market Committee) more difficult and delayed.

2. Productivity could be affected by the shutdown. The decline in government activity can potentially deduct 0.1 percent per week from annualized GDP, possibly creating uncertainty.

3. There is an impact of jobs but furloughed employees in the government receive back pay.

4. The impact on financial markets may be limited.

5. The exchange rate of the dollar can weaken but there could be strengthening after the end of the shutdown.

6. There could be limited impact on Treasury bond yields that could be higher on inflation-linked products.

 

Morgan Stanley provides analysis of the shutdowns (https://www.morganstanley.com/articles/government-shutdown-economic-impact-2025):

 

1. Historical analysis by Morgan Stanley economists concludes that there is a mild reduction of 0.05 percentage points per week of a shutdown.
2. Gross Domestic Product (GDP) was lower by 0.02 percentage points in the shutdown of 2018-2019 that it would have been without the shutdown
3. During the twenty shutdowns real GDP still grew at average 2.2 percent
4. The conclusion is that “the 20 government shutdowns that have occurred since 1976 appear to have had limited impact on the economy”

 

David Wessel at the Brookings Institution explains “What is a government shutdown?” (https://www.brookings.edu/articles/what-is-a-government-shutdown-and-why-are-we-likely-to-have-another-one/):

 

1. There could be delays in applications for passports, small business loans and multiple other services
2. Wessel provides important details of contingency and other measures affecting employees in the government during the shutdown
3. There is exemption for members of Congress but some interruptions of payment to staff that would receive remuneration retroactively
4. Wessel finds that there were effects on operations above one day only in four prior shutdowns: 26 days in 1995-1996, 16 days in 2013 (Affordable Care Act), 35 days in partial shutdown Dec 2018-Jan 2019

 

Oxford Economics analyses the costs of a government shutdown and duration of past shutdowns (https://www.oxfordeconomics.com/resource/economic-costs-of-a-government-shutdown/):

1. A partial shutdown could reduce growth of GDP by 0.1 percentage points to 0.2 percentage points. A shutdown during quarter could reduce quarterly growth of GDP by 1.2 percentage points to 2.4 percentage points. There has not been a quarterly shutdown.

 

Sam Berger, “Understanding the Legal Framework Governing a Shutdown,” Sep 17, 2025, Center on Budget and Policy Priorities, Washington, DC, Available in JSTOR.org, “focuses on the activities that can (and cannot) legally continue during a shutdown.” Berger argues that the shutdown “does not provide the Administration any additional legal authority to fire employees, limit review of its actions by federal courts, or freeze funding once full-year appropriations are provided.”  According to the Antideficiency Act, government “agencies can neither spend, nor make commitments to spend, money without appropriations from Congress.” There are some activities that can continue during a shutdown according to Berger:

1.      Those provided in law to continue such as “necessary supplies for military personnel

2.      “Activities that are necessary to prevent significant damage to funded programs” such as Social Security payments

3.      “Activities necessary to discharge the President’s constitutional duties” such as “Commander-in-Chief responsibilities.” Berger notes services continuing during shutdowns: defense, law enforcement, transportation safety, Social Security and Medicare”

4.       Berger argues that “Even for activities that continue during a shutdown because they are subject to one of the exceptions described above, funding to pay for them cannot be provided without appropriations. The federal personnel required to work — including law enforcement, prison guards, and the staff. That process Social Security benefits — only receive IOUs that will be paid when appropriations are enacted. Federal contractors required to work or provide services also go unpaid during the shutdown.”

5.      Congress and the Judiciary determine independently of the Executive what activities continue.

 

Carl E. Klarner, Justin H. Phillips and Matt Muckler, “Overcoming Fiscal Gridlock: Institutions and Budget Bargaining, The Journal of Politics, Vol. 74, No. 4 (Oct. 2023), 992-1009, The University of Chicago Press on Behalf of the Southern Political Science Association, provide an extensive analysis that “costs of bargaining failure are important determinants of legislative delay and gridlock.

 

Alfred Hill, The Shutdowns and the Constitution, Political Science Quarterly, Vol. 115, No. 2 (Summer, 2000), pp. 273-282, concludes that “In sum, even assuming that Congress is not answerable to the courts for refusal to appropriate, it does not follow that Congress my refuse to appropriate for any reason it pleases. Congress may never ignore the dictates of the Constitution.”

 

Nora Delaney, Interview with Linda Bilmes, “The Economic and Human Costs Can be High, HKS Expert Says,” Harvard Kennedy School, October 8, 2025 (https://www.hks.harvard.edu/faculty-research/policy-topics/democracy-governance/explainer-why-government-shutdowns-keep). “Shutdowns cost taxpayers a fortune” in “an all-hands-on-deck effort to wind down the government. The second reason is that contractors…pad their contracts because they are always aware that there might be a shutdown or disruption to government payments. Then there is the knock-on cost throughout state and local governments and county governments, all of which rely on federal funding. It is pernicious because over time, these government shutdowns and ‘almost-shutdowns’ and ‘almost defaults” lead to a loss of public confidence in the ability of the government to function and to get things done.”

 

In a Letter to the Honorable Jodey Arrington, Chairman, Committee on the Budget, U.S. House of representatives, the Congressional Budget Office provides “A Qualitative Effect of the Government Shutdown on the Economy as of October 17, 2025” (https://www.cbo.gov/system/files/2025-10/61822-qualitative-effects-of-shutdown.pdf):

The analysis in this letter is based largely on the framework CBO developed in 2019 after the five-week partial shutdown that lasted from December 22, 2018, to January 25, 2019.1 CBO will continue to analyze the budget and economic effects of the government shutdown and will publish additional information when it is available. The magnitude of the effects described below will depend on the Administration’s decisions regarding which executive branch activities continue and which are halted. The Administration has paid active-duty members of the military (including the Coast Guard) this week, and it has stated it will pay certain federal law-enforcement officers. Some agencies, such as the Internal Revenue Service, were able to continue to pay workers during the initial days of the shutdown. In addition, any federal employment that ends because of a reduction in force that would not have occurred in the absence of a shutdown would reduce outlays for federal employees’ compensation beyond the shutdown period.

The magnitude of the effects of the shutdown will also depend on its duration. In CBO’s assessment, the negative effects of the shutdown on the economy will grow the longer the shutdown is in effect. In addition, the economic effects will vary slightly each week, in part because many federal employees are paid every two weeks. Effects on Federal Employment The Antideficiency Act generally prevents federal agencies and employees from obligating or expending federal funds in advance of or in excess of an appropriation or apportionment as well as from accepting voluntary services.2 Specifically, that law requires federal employees to stop working during a lapse in appropriations that funds their activities unless they are considered excepted. (Excepted workers are those who are required to perform specific tasks, such as carrying out emergency work protecting life and property or overseeing the orderly suspension of agency operations.) The number of furloughed employees will vary over the course of the shutdown because some additional employees will be furloughed the longer a shutdown persists and some previously furloughed employees will be recalled. Outlays for federal employees’ compensation will be reduced during the shutdown from what they would have been otherwise. Those reductions will include missed compensation for furloughed employees and excepted employees. CBO’s analysis incorporates the expectation that when the lapse in appropriations is over, furloughed and excepted employees will be paid retroactively at their regular rate of pay. Effects on the Overall Economy In CBO’s assessment, the government shutdown will have negative effects on the economy, although many of those effects will be temporary. The effects will increase with a longer shutdown. Effects on Real GDP. CBO estimates that the government shutdown will temporarily reduce the level of real GDP (that is, gross domestic product adjusted to remove the effects of inflation). The decrease will be driven by three factors: Fewer services will be provided by federal workers, federal spending on goods and services will be temporarily lower, and a temporary reduction in aggregate demand will lower output in the private sector. GDP will rebound when funding resumes, but some forgone GDP stemming from time federal employees did not work will not be recovered in the future. Effects on the Labor Market. The shutdown will increase the unemployment rate because the Bureau of Labor Statistics counts most furloughed workers as unemployed (on temporary layoff) as long as those workers report that they are furloughed federal employees and are not otherwise temporarily employed. Excepted employees themselves have no effect on the unemployment rate as long as they report that they worked for pay during the previous week. (They do contribute to the temporary reduction in aggregate demand.) Any people who lose their jobs because of reductions in force that would not have occurred in the absence of a shutdown and who do not find other jobs will increase the unemployment rate. In addition, the temporary reduction in aggregate demand that lowers output in the private sector will temporarily slow hiring and increase layoffs in the private sector. Those effects will translate to a higher unemployment rate and lower employment during the shutdown. In CBO’s assessment, those effects will wane quickly once funding resumes.

Effects on Business Activity and Income. CBO estimates that in the near term, the shutdown will reduce aggregate demand in the private sector for goods and services. The delay in federal compensation will lower consumer spending during the shutdown by federal workers who do not receive paychecks that they would have received otherwise. In addition, the delay in federal spending on goods and services will lead to a loss of privatesector income that will further lower demand for other goods and services in the economy. Those effects will reverse once workers receive back pay and federal agencies resume making purchases and providing services. Effects on Tourism. The shutdown will affect tourism because some sites administered by the National Park Service—such as the Washington Monument, Independence Hall, and the Gateway Arch—are closed. Such disruptions will cause economic losses to leisure travelers and the entities providing the affected services. To some extent, losses in tourism activity due to closures of national parks and museums may be offset if tourists choose alternative destinations or activities or may be recovered if tourists reschedule their visits. Other Effects on the Economy. The shutdown could have other effects on the economy. For example, delays or cancellations of data collection by federal statistical agencies increases uncertainty about the economy among investors, households, and policymakers. In the absence of certain data, the Federal Reserve would have to make monetary policy decisions with less information. Heightened uncertainty and the absence of funding for agencies that help mitigate various risks would reduce investors’ confidence and affect firms’ plans to invest and hire. In addition, some businesses may be unable to obtain federal permits and certifications, and some would face interruptions to their access to subsidies and loans provided by the federal government.

 

An extremely important analysis of United States fiscal future is provided by N. Gregory Mankiw, “The Fiscal Future: 17^th Annual Martin Feldstein Lecture, 2025 (https://www.nber.org/sites/default/files/2025-07/Martin%20Feldstein%20Lecture%202025%20Final%20%281%29.pdf). The lecture focuses on “the stance of fiscal policy and the path of government debt.” Mankiw quotes the CBO that the debt/GDP ratio is moving toward 156 percent in 2055. Mankiw concludes “But if Marty Feldstein were here with us today, he would likely give us reason to be more optimistic. His copious body of op-eds—many written with Kate—was premised on the conviction that a better-educated public would embrace a more rational economic policy. Perhaps that can occur this time. The United States experienced substantial declines in government debt relative to GDP, without major economic disruptions, from 1790 to 1830, from 1870 to 1910, and from 1945 to 1975. Maybe the fiscal future will indeed be so benign. I don’t yet see the path from here to there through the political thicket, but I hope it is out there somewhere, ready to be found.” The fiscal sustainability of the United States should be a key determinant of policy.

 

It’s Past Time to End This Shutdown

October 27, 2025

Categories: The Insider

By: Everett Kelley, AFGE National President 

https://www.afge.org/article/its-past-time-to-end-this-shutdown/

“This week, Congress pushed our nation into the fourth week of a full government shutdown – an avoidable crisis that is harming families, communities, and the very institutions that hold our country together. Both political parties have made their point, and still there is no clear end in sight. 

Today I’m making mine: it’s time to pass a clean continuing resolution and end this shutdown today. No half measures, and no gamesmanship. Put every single federal worker back on the job with full back pay — today.  

As president of the American Federation of Government Employees, I represent over 800,000 federal and D.C. government workers who serve with pride and professionalism. 

They ensure our skies are safe, our veterans receive care, our borders are protected, and our food is inspected. They come from every political background and every corner of this nation. What unites them is a simple belief: that service to country is honorable work. 

Today, that belief is being tested. The Army nurse in San Antonio, the TSA officer in Atlanta, the USDA food safety inspector in Iowa, and hundreds of thousands more like them are being asked to keep our country running without the paychecks that keep their own households afloat. 

These are patriotic Americans – parents, caregivers, and veterans – forced to work without pay while struggling to cover rent, groceries, gas and medicine because of political disagreements in Washington. That is unacceptable. 

Unfortunately, shutdowns have become a recurring tactic in Washington. But there is no “winning” a government shutdown. They cost taxpayers billions, hurt small businesses, and erode confidence in government itself. And the American people know this. That’s why 9 out of 10 Americans think this government shutdown is a problem. 

It’s time for our leaders to start focusing on how to solve problems for the American people, rather than on who is going to get the blame for a shutdown that Americans dislike. 

Because when the folks who serve this country are standing in line for food banks after missing a second paycheck because of this shutdown, they aren’t looking for partisan spin. They’re looking for the wages they earned. The fact that they’re being cheated out of it is a national disgrace. 

It’s long past time for our leaders to put aside partisan politics and embrace responsible government. A strong America requires a functioning government — one that pays its bills, honors its commitments, and treats its workforce with respect by paying them on time. 

The path forward for Congress is clear: 

Reopen the government immediately under a clean continuing resolution that allows continued debate on larger issues. 

Ensure back pay for every single employee who has served or been forced to stay home through no fault of their own. 

Work together on a bipartisan basis to address important policy matters like addressing rising costs and fixing the broken appropriations process. 

None of these steps favor one political side over another. They favor the American people – who expect stability from their government and responsibility from their leaders. 

The national interest requires Congress to act immediately to bring every federal employee back to work, pay them for the work they’ve already done (or been locked out from doing), and continue having the debates and disagreements that are the hallmark of a strong democracy – without punishing the people who keep our nation running. 

The government belongs to all of us. Let’s open it back up and keep America moving forward.”

 

There are measures to avoid accidents in air traffic “WASHINGTON, D.C. — U.S. Transportation Secretary Sean P. Duffy and Federal Aviation Administration (FAA) Administrator Bryan Bedford today outlined the proactive actions the FAA will take to maintain the highest standards of safety in the national airspace system. This includes achieving a temporary 10 percent reduction in flights at 40 high traffic airports across the country.” Full text available at (https://www.transportation.gov/briefing-room/us-transportation-secretary-sean-p-duffy-faa-administrator-bryan-bedford-outline).

 

There are losses of data in October and likely delays forward: “Key economic reports for October may not be released at all because of the government shutdown, a senior White House official said Wednesday.” Posted by CNBC (https://www.cnbc.com/2025/11/12/white-house-october-data-release.html).

 

I H.R.5371 - Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026

H.R.5371 - Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026119th Congress (2025-2026) | Get alerts

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Sponsor:	Rep. Cole, Tom [R-OK-4] (Introduced 09/16/2025)
Committees:	House - Appropriations; Budget
Committee Meetings:	11/11/25 6:30PM 09/16/25 2:50PM
Latest Action:	11/12/2025 Signed by President.  (All Actions)
Roll Call Votes:	There have been 26 roll call votes
Tracker: Tip	This bill has the status Became Law Here are the steps for Status of Legislation: Introduced Passed House Failed Senate Passed Senate Resolving Differences To President Became Law

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• Related Bills (6)

Summary: H.R.5371 — 119th Congress (2025-2026)All Information (Except Text)

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There are 2 summaries for H.R.5371. 

                                                             Passed Senate (11/10/2025)                                                             Introduced in House (09/16/2025)                                                     

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Bill summaries are authored by CRS.

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Passed Senate (11/10/2025)

Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026

This bill ends the government shutdown by providing FY2026 continuing appropriations for most federal agencies through January 30, 2026, and providing appropriations through the end of FY2026 for agriculture, military construction and veterans affairs, and legislative branch programs. It also extends various expiring programs and authorities.

Specifically, the bill provides continuing FY2026 appropriations to most federal agencies through the earlier of January 30, 2026, or the enactment of the applicable appropriations act. It is known as a continuing resolution (CR) and ends the government shutdown that began on October 1, 2025, because the FY2026 appropriations bills had not been enacted. The CR funds most programs and activities at the FY2025 levels with several exceptions that provide funding flexibility and additional appropriations for various programs.

The bill also provides back pay to all federal employees who were not paid during the government shutdown, prohibits federal agencies from taking actions related to a reduction in force (RIF) through January 30, 2026, and nullifies RIFs that were implemented by federal agencies between October 1, 2025, and the date of enactment for this bill. 

In addition, the bill includes three regular FY2026 appropriations bills that fund the following agencies and activities though the end of FY2026: 

• the Department of Agriculture,
• the Food and Drug Administration, 
• Department of Defense military construction and family housing activities,
• the Department of Veterans Affairs,
• Congress and agencies that support Congress, and
• several related and independent agencies.

Finally, the bill extends several expiring authorities and programs, including authorities related to 

• public health, Medicare, and Medicaid;
• cybersecurity;
• agriculture;
• Food and Drug Administration user fees;
• veterans benefits;
• actions to mitigate a threat from an unmanned aircraft system (i.e., drones); and
• the Defense Production Act of 1950.

IA1 H.R.5371 - Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026

IA The Shutdown of the Government from December 22, 2018 to January 25, 2019

IB Long Term US Inflation

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

IIID Appendix on European Central Bank Large Scale Lender of Last Resort

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

IIID Appendix on European Central Bank Large Scale Lender of Last Resort

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

 

Note: This Blog will post only one indicator of the US economy while we concentrate efforts in completing a book-length manuscript in the critically important subject of INFLATION.

 

Preamble. United States total public debt outstanding is $37.9 trillion and debt held by the public $30.4 trillion (https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny)[ Due to the lapse in funding, there may be a delay in the release of data and support for this website. We will resume our normal data publication schedule and support operations once funding is restored. There is additional information at https://www.treasury.gov/.] [Date last updated October 15, 2025.] The Federal Reserve Bank of Saint Louis estimates Federal Total Public Debt as percent of GDP at 119.3 in IIQ2025 and Federal Total Public Debt Held by the Public at 95.5 Percent of GDP (https://fred.stlouisfed.org/series/GFDEGDQ188S). [Shutdown affects data: https://news.research.stlouisfed.org/2025/09/a-u-s-government-shutdown-could-delay-some-fred-data-2/] The Net International Investment Position of the United States, or foreign debt, is $24.61 trillion at the end of IQ2025 (https://www.bea.gov/sites/default/files/2025-06/intinv125.pdf) [Shutdown affects data]. The United States current account deficit is 3.3 percent of nominal GDP in IIQ2025, “down from 5.9 percent in the first quarter” (https://www.bea.gov/sites/default/files/2025-09/trans225.pdf) (Next release Dec 18, 2025) [Shutdown affects data]. The Treasury deficit of the United States reached $1.8 trillion in fiscal year 2024 (https://fiscal.treasury.gov/reports-statements/mts/). Total assets of Federal Reserve Banks reached $6.6 trillion on Nov 12, 2025 and securities held outright reached $6.3 trillion (https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1). US GDP nominal NSA reached $30.5 trillion in IIQ2025 (https://apps.bea.gov/iTable/index_nipa.cfm). US GDP contracted at the real seasonally adjusted annual rate (SAAR) of 1.0 percent in IQ2022 and grew at the SAAR of 0.6 percent in IIQ2022, growing at 2.9 percent in IIIQ2022, growing at 2.8 percent in IVQ2022, growing at 2.9 percent in IQ2023, growing at 2.5 percent in IIQ2023 growing at 4.7 percent in IIIQ2023, growing at 3.4 percent in IVQ2023, growing at 0.8 percent in IQ2024, growing at 3.6 percent in IIQ2024, growing at 3.3 percent in IIIQ2024, growing at 1.9 percent in IVQ2024, contracting at 0.6 percent in IQ2025 and growing at 3.8 percent in IIQ2025 (https://apps.bea.gov/iTable/index_nipa.cfm). [Shutdown affects data] Total Treasury interest-bearing, marketable debt held by private investors increased from $3635 billion in 2007 to $16,439 billion in Sep 2021 (Fiscal Year 2021) or increase by 352.2 percent (https://fiscal.treasury.gov/reports-statements/treasury-bulletin/). John Hilsenrath, writing on “Economists Seek Recession Cues in the Yield Curve,” published in the Wall Street Journal on Apr 2, 2022, analyzes the inversion of the Treasury yield curve with the two-year yield at 2.430 on Apr 1, 2022, above the ten-year yield at 2.374. Hilsenrath argues that inversion appears to signal recession in market analysis but not in alternative Fed approach.

The Consumer Price index of the United States in Chart CPI-H increased 2.9 percent in Aug 2025 Relative to a Year Earlier, The Tenth Highest Since 8.9 percent in Dec 1981 was Followed by the Highest of 9.1 percent in Jun 2022, the Second Highest of 8.6 percent in May 2022, 8.5 percent in both Jul 2022 and Mar 2022, 8.3 percent in both Apr and Aug 2022, 8.2 percent in Sep 2022, 7.7 percent in Oct 2022, 7.1 percent in Nov 2022, 6.5 percent in Dec 2022, 6.4 percent in Jan 2023, 6.0 percent in Feb 2023, 5.0 percent in Mar 2023, 4.9 percent in Apr 2023, 4.0 percent in May 2023, 3.0 percent in Jun 2023, 3.2 percent in Jul 2023, 3.7 percent in Aug 2023, 3.7 percent in Sep 2023, 3.2 percent in Oct 2023, 3.1 percent in Nov 2023, 3.4 percent in Dec 2023, 3.1 percent in Jan 2024, 3.2 percent in Feb 2024, 3.5 percent in Mar 2024, 3.4 percent in Apr 2024, 3.3 percent in May 2024, 3.0 in Jun 2024, 2.9 percent in Jul 2024, 2.5 percent in Aug 2024, 2.4 percent in Sep 2024, 2.6 percent in Oct 2024, 2.7 percent in Nov 2024, 2.9 percent in Dec 2024, 3.0 percent in Jan 2025, 2.8 percent in Feb 2025, 2.4 percent in Mar 2025, 2.3 percent in Apr 2025, 2.4 percent in May 2025, 2.7 percent in Jun 2025, 2.7 percent in Jul 2025, 2.9 percent in Aug 2025 and 3.0 percent in Sep 2025.

Chart CPI-H, US, Consumer Price Index, 12-Month Percentage Change, NSA, 1981-2025

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

 

 Table CPI-H, US, Consumer Price Index, 12-Month Percentage Change, NSA, 1981-1983, 2019-2025

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
1981	11.8	11.4	10.5	10.0	9.8	9.6	10.8	10.8	11.0	10.1	9.6	8.9
1982	8.4	7.6	6.8	6.5	6.7	7.1	6.4	5.9	5.0	5.1	4.6	3.8
1983	3.7	3.5	3.6	3.9	3.5	2.6	2.5	2.6	2.9	2.9	3.3	3.8
2019	1.6	1.5	1.9	2.0	1.8	1.6	1.8	1.7	1.7	1.8	2.1	2.3
2020	2.5	2.3	1.5	0.3	0.1	0.6	1.0	1.3	1.4	1.2	1.2	1.4
2021	1.4	1.7	2.6	4.2	5.0	5.4	5.4	5.3	5.4	6.2	6.8	7.0
2022	7.5	7.9	8.5	8.3	8.6	9.1	8.5	8.3	8.2	7.7	7.1	6.5
2023	6.4	6.0	5.0	4.9	4.0	3.0	3.2	3.7	3.7	3.2	3.1	3.4
2024	3.1	3.2	3.5	3.4	3.3	3.0	2.9	2.5	2.4	2.6	2.7	2.9
2025	3.0	2.8	2.4	2.3	2.4	2.7	2.7	2.9	3.0

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm [Shutdown affects data.

Chart VII-3 of the Energy Information Administration provides the US retail price of regular gasoline. The price moved to $3.056 per gallon on Nov 10, 2025, from $3.052 a year earlier or 0.1 percent.

https://www.eia.gov/petroleum/weekly/

Chart VII-3A provides the US retail price of regular gasoline, dollars per gallon, from $1.191 on Aug 20,1990 to $3.056 on Nov 10, 2025 or 156.6 percent. The price of retail regular gasoline increased from $2.249/gallon on Jan 4,2021 to $3.056/gallon on Nov 10, 2025, or 35.9 percent. The price of retail regular gasoline decreased from $3.530/gallon on Feb 21, 2022, two days before the invasion of Ukraine, to $3.056/gallon on Nov 10, 2025 or minus 13.4 percent and had increased 57.0 percent from $2.249/gallon on Jan 4,2021 to $3.530/gallon on Feb 28, 2022. [EIA is continuing normal publication schedules and data collection until further notice All the data found here are provided elsewhere on the website. Charts and graphs will no longer be updated. All data links below continue to be updated as part of other data products, primarily the Weekly Petroleum Status Report.]

Chart VII-3A, US Retail Price of Regular Gasoline, Dollars Per Gallon

Source: US Energy Information Administration

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPMR_PTE_NUS_DPG&f=W 

Chart VII-4 of the Energy Information Administration provides the price of the Natural Gas Futures Contract increasing from $2.581 per million Btu on Jan 4, 2021 to $5.326 per million Btu on Dec 20, 2022 or 106.4 percent and closing at $1.785 on Apr 5, 2024 or change of minus 66.5 percent. [EIA is continuing normal publication schedules and data collection until further notice All the data found here are provided elsewhere on the website. Charts and graphs will no longer be updated. All data links below continue to be updated as part of other data products, primarily the Weekly Petroleum Status Report.]

Chart VII-4, US, Natural Gas Futures Contract 1

Source: US Energy Information Administration

https://www.eia.gov/dnav/ng/hist/rngc1d.htm [EIA is continuing normal publication schedules and data collection until further notice All the data found here are provided elsewhere on the website. Charts and graphs will no longer be updated. All data links below continue to be updated as part of other data products, primarily the Weekly Petroleum Status Report.]

Chart VII-5 of the US Energy Administration provides US field production of oil moving from a high of 12.983 thousand barrels per day in Dec 2019 to 11.760 thousand barrels per day in Dec 2021 and the final point of 13.794 thousand barrels per day in Aug 2025.

Chart VII-5 United States Field Production of Crude Oil, Thousand Barrels Per Day

Sources: US Energy Information Administration https://www.eia.gov/dnav/pet/hist/leafhandler.ashx?n=pet&s=mcrfpus2&f=m [EIA is continuing normal publication schedules and data collection until further notice All the data found here are provided elsewhere on the website. Charts and graphs will no longer be updated. All data links below continue to be updated as part of other data products, primarily the Weekly Petroleum Status Report.]

Chart VII-6 of the US Energy Information Administration provides net imports of crude oil and petroleum products. Net imports changed from 1967 thousand barrels per day in the first week of Dec 2020 to minus -3216 thousand barrels in the fourth week of Oct 25, 2024, minus 3310 thousand barrels in the second week of Dec 13, 2024 and minus 3143 thousand barrels in the first week of Nov 7, 2025.

 

Chart VII-6, US, Net Imports of Crude Oil and Petroleum Products, Thousand Barrels Per Day

Source: US Energy Information Administration

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTNTUS2&f=W [EIA is continuing normal publication schedules and data collection until further notice All the data found here are provided elsewhere on the website. Charts and graphs will no longer be updated. All data links below continue to be updated as part of other data products, primarily the Weekly Petroleum Status Report.]

Chart VI-7 of the EIA provides US Petroleum Consumption, Production, Imports, Exports and Net Imports 1950-2022. There was sharp increase in production in the final segment that reached consumption by 2020. There is reversal in 2021 with consumption exceeding production. 

Chart VI-7, US Petroleum Consumption, Production, Imports, Exports and Net Imports 1950-2022, Million Barrels Per Day

https://www.eia.gov/energyexplained/oil-and-petroleum-products/imports-and-exports.php

Chart VI-8 provides the US average retail price of electricity at 12.78 cents per kilowatthour in Dec 2020 increasing to 17.62 cents per kilowatthour in Aug 2025 or 37.9 per cent. [EIA is continuing normal publication schedules and data collection until further notice All the data found here are provided elsewhere on the website. Charts and graphs will no longer be updated. All data links below continue to be updated as part of other data products, primarily the Weekly Petroleum Status Report.]

Chart VI-8, US Average Retail Price of Electricity, Monthly, Cents per Kilowatthour

https://www.eia.gov/electricity/data/browser/#/topic/7?agg=0,1&geo=g&endsec=vg&linechart=ELEC.PRICE.US-RES.M~~~&columnchart=ELEC.PRICE.US-ALL.M~ELEC.PRICE.US-RES.M~ELEC.PRICE.US-COM.M~ELEC.PRICE.US-IND.M&map=ELEC.PRICE.US-ALL.M&freq=M&start=200101&end=202205&ctype=linechart&ltype=pin&rtype=s&pin=&rse=0&ma

United States manufacturing output from 1919 to 2025 monthly is in Chart I-4 of the Board of Governors of the Federal Reserve System. The second industrial revolution of Jensen (1993) is quite evident in the acceleration of the rate of growth of output given by the sharper slope in the 1980s and 1990s. Growth was robust after the shallow recession of 2001 but dropped sharply during the global recession after IVQ2007. Manufacturing output recovered sharply but has not reached earlier levels and is losing momentum at the margin.  There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 2.8 percent per year from Aug 1919 to Aug 2025. Growth at 2.8 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 106.7431 in Dec 2007 to 173.8690 in Aug 2025. The actual index NSA in Aug 2025 is 101.1782 which is 41.8 percent below trend. The underperformance of manufacturing in Mar-Nov 2020 originates partly in the earlier global recession augmented by the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the trough in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021).  Manufacturing output grew at average 1.5 percent between Dec 1999 and Dec 2006. Using trend growth of 1.5 percent per year, the index would increase to 138.8594 in Aug 2025. The output of manufacturing at 101.1782 in Aug 2025 is 27.1 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 108.3270 in Jun 2007 to the low of 84.5996 in Jun 2009 or 21.9 percent. The NAICS manufacturing index increased from 84.5996 in Apr 2009 to 101.7890 in Aug 2025 or 20.3 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 104.6449 in Dec 2007 to 192.1628 in Aug 2025. The NAICS index at 101.7890 in Aug 2025 is 47.0 percent below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 104.6449 in Dec 2007 to 140.9475 in Aug 2025. The NAICS index at 101.7890 in Aug 2025 is 27.8 percent below trend under this alternative calculation. [G.17 October 17th release delayed

The industrial production indexes that are published in the G.17 Statistical Release on Industrial Production and Capacity Utilization incorporate a range of data from other government agencies, the publication of which has been delayed as a result of the federal government shutdown. Consequently, the G.17 release will not be published as scheduled on October 17, 2025. The Federal Reserve will announce a publication date for the G.17 release after the publication dates of the necessary source data become available. https://www.federalreserve.gov/feeds/g17.html]

Chart I-4, US, Manufacturing Output, 1919-2025

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Chart I-4B provides the data for the period 2007-2025 SIC US Manufacturing. There has not been recovery from the higher levels before the recession from Dec 2007 to Aug 2009 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions). [G.17 October 17th release delayed

The industrial production indexes that are published in the G.17 Statistical Release on Industrial Production and Capacity Utilization incorporate a range of data from other government agencies, the publication of which has been delayed as a result of the federal government shutdown. Consequently, the G.17 release will not be published as scheduled on October 17, 2025. The Federal Reserve will announce a publication date for the G.17 release after the publication dates of the necessary source data become available. https://www.federalreserve.gov/feeds/g17.html]

Chart I-4B, US, Manufacturing Output, 2007-2025

htps://www.federalreserve.gov/releases/g17/Current/default.htm

Chart I-7 of the Board of Governors of the Federal Reserve System shows that output of durable manufacturing accelerated in the 1980s and 1990s with slower growth in the 2000s perhaps because processes matured. Growth was robust after the major drop during the global recession but appears to vacillate in the final segment. There is sharp contraction in Mar-Apr 2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the trough in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). There is initial recovery in May 2020-Oct 2022 with deterioration/weakness and renewed oscillating growth in Nov 2022-Aug 2025.

Chart I-7, US, Output of Durable Manufacturing, 1972-2025

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm [G.17 October 17th release delayed The industrial production indexes that are published in the G.17 Statistical Release on Industrial Production and Capacity Utilization incorporate a range of data from other government agencies, the publication of which has been delayed as a result of the federal government shutdown. Consequently, the G.17 release will not be published as scheduled on October 17, 2025. The Federal Reserve will announce a publication date for the G.17 release after the publication dates of the necessary source data become available. https://www.federalreserve.gov/feeds/g17.html]

Chart I-7B provides NAICS Durable Manufacturing from 2007 to 2025. There has not been recovery from the higher levels before the recession from Dec 2007 to Aug 2009 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions).

Chart I-7B, US, Output of Durable Manufacturing, 2007-2025

Source: Board of Governors of the Federal Reserve System

htps://www.federalreserve.gov/releases/g17/Current/default.htm

Chart V-3D provides the index of US manufacturing (NAICS) from Jan 1972 to Aug 2025. The index continued increasing during the decline of manufacturing jobs after the early 1980s. There are likely effects of changes in the composition of manufacturing with also changes in productivity and trade. There is sharp decline in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the trough in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). [[G.17 October 17th release delayed

The industrial production indexes that are published in the G.17 Statistical Release on Industrial Production and Capacity Utilization incorporate a range of data from other government agencies, the publication of which has been delayed as a result of the federal government shutdown. Consequently, the G.17 release will not be published as scheduled on October 17, 2025. The Federal Reserve will announce a publication date for the G.17 release after the publication dates of the necessary source data become available. https://www.federalreserve.gov/feeds/g17.html]

Chart V-3D, United States Manufacturing (NAICS) NSA, Jan 1972 to Aug 2025

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htmh

Chart V-3DB provides NAICS Manufacturing from 2007 to 2025. There has not been recovery from the higher levels before the recession from Dec 2007 to Aug 2009 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions). [[G.17 October 17th release delayed

The industrial production indexes that are published in the G.17 Statistical Release on Industrial Production and Capacity Utilization incorporate a range of data from other government agencies, the publication of which has been delayed as a result of the federal government shutdown. Consequently, the G.17 release will not be published as scheduled on October 17, 2025. The Federal Reserve will announce a publication date for the G.17 release after the publication dates of the necessary source data become available. https://www.federalreserve.gov/feeds/g17.html]

Chart V-3DB, United States Manufacturing (NAICS) NSA, Jan 2007 to Aug 2025

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm [[G.17 October 17th release delayed The industrial production indexes that are published in the G.17 Statistical Release on Industrial Production and Capacity Utilization incorporate a range of data from other government agencies, the publication of which has been delayed as a result of the federal government shutdown. Consequently, the G.17 release will not be published as scheduled on October 17, 2025. The Federal Reserve will announce a publication date for the G.17 release after the publication dates of the necessary source data become available. https://www.federalreserve.gov/feeds/g17.html]

Chart VII-9 provides the fed funds rate and Three Months, Two-Year and Ten-Year Treasury Constant Maturity Yields. Unconventional monetary policy of near zero interest rates is typically followed by financial and economic stress with sharp increases in interest rates.

Chart VII-9, US Fed Funds Rate and Three-Month, Two-Year and Ten-Year Treasury Constant Maturity Yields, Jan 2, 1994 to 2022-2023

Source: Federal Reserve Board of the Federal Reserve System

https://www.federalreserve.gov/releases/h15/

            Note: program does not download the entire right-side of the chart.

Chart VII-9A, US Fed Funds Rate and Three-Month, Two-Year and Ten-Year Treasury Constant Maturity Yields, Jan 2, 2022 to May 30, 2023

Source: Federal Reserve Board of the Federal Reserve System

https://www.federalreserve.gov/releases/h15/

Note: Chart is shortened of current dates in download.

Chart VI-14 provides the overnight fed funds rate, the yield of the 10-year Treasury constant maturity bond, the yield of the 30-year constant maturity bond and the conventional mortgage rate from Jan 1991 to Dec 1996. In Jan 1991, the fed funds rate was 6.91 percent, the 10-year Treasury yield 8.09 percent, the 30-year Treasury yield 8.27 percent and the conventional mortgage rate 9.64 percent. Before monetary policy tightening in Oct 1993, the rates and yields were 2.99 percent for the fed funds, 5.33 percent for the 10-year Treasury, 5.94 for the 30-year Treasury and 6.83 percent for the conventional mortgage rate. After tightening in Nov 1994, the rates and yields were 5.29 percent for the fed funds rate, 7.96 percent for the 10-year Treasury, 8.08 percent for the 30-year Treasury and 9.17 percent for the conventional mortgage rate.

Chart VI-14, US, Overnight Fed Funds Rate, 10-Year Treasury Constant Maturity, 30-Year Treasury Constant Maturity and Conventional Mortgage Rate, Monthly, Jan 1991 to Dec 1996

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/h15/update/

Chart VI-15 of the Bureau of Labor Statistics provides the all items consumer price index from Jan 1991 to Dec 1996. There does not appear acceleration of consumer prices requiring aggressive tightening.

Chart VI-15, US, Consumer Price Index All Items, Jan 1991 to Dec 1996

Source: Bureau of Labor Statistics

https://www.bls.gov/cpi/data.htm

Chart IV-16 of the Bureau of Labor Statistics provides 12-month percentage changes of the all items consumer price index from Jan 1991 to Dec 1996. Inflation collapsed during the recession from Jul 1990 (III) and Mar 1991 (I) and the end of the Kuwait War on Feb 25, 1991 that stabilized world oil markets. CPI inflation remained almost the same and there is no valid counterfactual that inflation would have been higher without monetary policy tightening because of the long lag in effect of monetary policy on inflation (see Culbertson 1960, 1961, Friedman 1961, Batini and Nelson 2002, Romer and Romer 2004). Policy tightening had adverse collateral effects in the form of emerging market crises in Mexico and Argentina and fixed income markets worldwide.

Chart VI-16, US, Consumer Price Index All Items, Twelve-Month Percentage Change, Jan 1991 to Dec 1996

Source: Bureau of Labor Statistics

https://www.bls.gov/cpi/data.htm

 

Chart USFX provides the exchange rate of US Dollars per EURO from 2007 to 2023. Barry Eichengreen and Jeffrey Sachs, Exchange Rates and Economic Recovery in the 1930s, The Journal of Economic History, Vol. 45, No. 4 (Dec 1985), argue that foreign exchange “depreciation was clearly beneficial for initiating countries” during the Great Depression of the 1930s and that it was no equivalent to “beggar my neighbor” policies such as tariffs.

\

Chart USFX, Exchange Rate USD/EURO 2007-2023

Source: https://www.federalreserve.gov/releases/h10/current/

Chart USFX, Exchange Rate USD/EURO 2000-2023

Source: https://www.federalreserve.gov/releases/h10/current/

Federal Reserve Bank of St. Louis https://fred.stlouisfed.org/

Chart USFX, Exchange Rate USD/EURO 2018-2023

Source: https://www.federalreserve.gov/releases/h10/current/

Federal Reserve Bank of St. Louis https://fred.stlouisfed.org/

Table USFX provides the rate of USD/EURO in selected months. The dollar appreciated sharply from USD 1.2254 on Jan 4, 2021 to 1.0787 on Aug 25, 2023 and 1.1578 on Nov 7, 2025.

Table USFX, USD/EURO Selected Months

Date	USD/EUR
1/4/2021	1.2254
1/5/2021	1.2295
1/6/2021	1.229
1/7/2021	1.2265
1/8/2021	1.2252
1/11/2021	1.2169
1/12/2021	1.2168
1/13/2021	1.2159
1/14/2021	1.2156
1/15/2021	1.2099
1/31/2023	1.0858
2/1/2023	1.0917
2/2/2023	1.0918
2/3/2023	1.0825
2/6/2023	1.0722
2/7/2023	1.0705
2/8/2023	1.0734
2/9/2023	1.0761
2/10/2023	1.0670
2/13/2023	1.0718
2/14/2023	1.0722
2/15/2023	1.0683
2/16/2023	1.0684
2/17/2023	1.0678
2/24/2023	1.0545
3/03/2023	1.0616
3/10/2023	1.0659
3/17/2023	1.0647
3/24/2023	1.0762
3/31/2023	1.0872
4/7/2023	1.0913
4/14/2023	1.0980
4/21/2023	1.0973
4/28/2023	1.1040
5/5/2023	1.1026
5/26/2023	1.0713
6/2/2023	1.0724
6/9/2023	1.0749
6/16/2023	1.0925
6/23/2023	1.0887
6/30/2023	1.0920
7/7/2023	1.0964
7/14/2023	1.1237
7/21/2023	1.1120
7/28/2023	1.1039
8/4/2023	1.1036
8/11/2023	1.0957
8/18/2023	1.0875
8/25/2023	1.0787
9/1/223	1.0787
9/8/2023	1.0709
9/15/2023	1.0673
9/22/2023	1.0660
9/29/2023	1.0584
10/6/2023	1.0596
10/13/2023	1.0502
10/20/2023	1.0592
10/27/2023	1.0592
11/3/2023	1.0733
11/10/2023	1.0710
11/17/2023	1.0879
11/24/2023	1.0934
12/1/2023	1.0878
12/8/2023	1.0746
12/15/2023	1.0906
6/21/2024	1.0694
2/7/2025	1.0329
11/07/2025	1.1578

Source: https://www.federalreserve.gov/releases/h10/current/

. U.S. International Trade in Goods and Services, June 2025

July 2025	-$78.3 B
June 2025	-$59.1 B

The U.S. goods and services trade deficit increased in July 2025 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $59.1 billion in June (revised) to $78.3 billion in July, as imports increased more than exports. The goods deficit increased $18.2 billion in July to $103.9 billion. The services surplus decreased $1.1 billion in July to $25.6 billion.

• Current Release: September 4, 2025
• Next release: October 7, 2025

Source: https://www.bea.gov/data/intl-trade-investment/international-trade-goods-and-services [Data are not being updated during shutdown.]

A comprehensive analysis of the Mill-Bickerdike theorem and the Lerner theorem on tariffs and international terms of trade with application to the Brazilian coffee support program, the recovery of Brazil from the Great Depression and Brazil’s industrialization is in Carlos Manuel Pelaez, História da Industrialização Brasileira. Rio de Janeiro, APEC Editora, 1972.

Chart IID-1B provides the US terms of trade index, index of terms of trade of nonpetroleum goods and index of terms of trade of goods with the new base of 2017. The terms of trade of nonpetroleum goods dropped sharply from the mid-1980s to 1995, recovering significantly until 2014, dropping and then recovering again into 2021. There is relative stability in the terms of trade of nonpetroleum goods from 1967 to 2025 but sharp deterioration in the overall index and the index of goods.

Chart IID-1B, United States Terms of Trade Indexes 1967-2025, Quarterly

Source: Bureau of Economic Analysis

https://apps.bea.gov/iTable/index_nipa.cfm [Data are not being updated during shutdown.]

Percentage shares of net trade (exports less imports), exports and imports in US Gross Domestic Product are in Chart IA1-14 from 1979 to 2025. There is sharp trend of decline of exports and imports after the global recession beginning in IVQ2007. Net trade has been subtracting from growth since the stagflation of the 1970s.

Chart IA1-14, US, Percentage Shares of Net Trade, Exports and Imports in Gross Domestic Product, Quarterly, 1979-2025

Source: US Bureau of Economic Analysis

https://apps.bea.gov/iTable/index_nipa.cfm  [Data are not being updated during shutdown.]

Table B provides the exchange rate of Brazil and the trade balance from 1927 to 1939. “Currency depreciation in the 1930s…benefitted the initiating countries…There can be no presumption that depreciation was beggar-thy-neighbor…competitive devaluation taken by a group of countries had they been even more widely adopted and coordinated internationally would have hasted recovery from the Great Depression,” Barry Eichengreen and Jeffrey Sachs, “Exchange Rates and Economic Recovery in the1930s,” Journal of Economic History, Vol. 45, No. 4 (Dec., 1985), pp.925-946.

Table B, Brazil, Exchange Rate and Trade Balance, 1927-1939

Year		Exchange Rate Mil-Réis per £		Trade Balance 1000 Contos
1927		40.6		370.9
1928		40.3		275.3
1929		40.6		332.7
1930		49.4		563.6
1931		62.4		1517.2
1932		48.1		1018.1
1933		52.6		655
1934		59.7		956.2
1935		57.9		248.1
1936		58.4		626.8
1937		56.9		-222.5
1938		57.6		-98.7
1939		71.1		631.9

Source: Carlos Manuel Peláez, Análise Econômica do Programa Brasileiro de Sustentação do Café 1906-1945: Teoria, Política e Medição, Revista Brasileira de Economia, Vol. 25, N 4, Out/Dez 1971, 5-213.

Christina D. Romer argues that growth of the money stock was critical in the recovery of the United States from the Great Depression (Christina D. Romer, What ended the Great Depression? The Journal of Economic History, Volume 52, Number 4, Dec 1992, pp 757-784).

Table C, Brazil, Yearly Percentage Changes of the Money Stock, M1 and M2, Exchange Rate, Terms of Trade, Industrial Production, Real Gross National Product and Real Gross Income Per Capita, 1930-1939

Period	M1	M2	Exchange Rate	Terms of Trade	Industrial Production	Real GNP	Real Gross Income Per Capita
1929/30	-9	-4	22	-34	-5	-1	-10
1930/31	4	1	26	-5	8	-3	-6
1931/32	15	7	-23	8	0	6	2
1932/33	10	4	10	-15	16	10	7
1933/34	5	6	13	5	13	7	5
1934/35	7	8	-3	-28	14	1	-4
1935/36	10	11	1	2	14	12	9
1936/37	10	9	-3	2	7	3	0
1937/38	19	13	1	-11	6	4	-1
1938/39	0	8	23	-12	14	4	2

Source: Carlos Manuel Peláez and Wilson Suzigan, História Monetária do Brasil. Segunda Edição Revisada e Ampliada. Coleção Temas Brasileiros, Universidade de Brasília, 1981.

“In the period of the free coffee market 1857-1906, international coffee prices fluctuated in cycles of increasing amplitude. British export prices decreased at a low average rate, and physical exports of coffee by Brazil increased at the average rate of 2.9 percent per year. The income terms of trade of the coffee economy of Brazil improved at the average compound rate of 4.0 percent per year. But the actual rate must have been much higher because of drastic improvements in the quality of manufactures while the quality of coffee remained relatively constant,” Carlos Manuel Peláez, “The Theory and Reality of Imperialism in the Coffee Economy of Nineteenth-Century Brazil,” The Economic History Review, Second Series, Volume XXIX, No. 2, May 1976. 276-290. See Carlos Manuel Peláez, “A Comparison of Long-Term Monetary Behavior and Institutions in Brazil, Europe and the United States,” The Journal of European Economic History, Volume 5, Number 2, Fall 1976, 439-450, Presented at the Sixth International Congress of Economic History, Section on Monetary Inflation in Historical Perspective, Copenhagen, 22 Aug 1974.

In his classic restatement of the Keynesian demand function in terms of “liquidity preference as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies the risks of low interest rates in terms of portfolio allocation (Tobin 1958, 86):

“The assumption that investors expect on balance no change in the rate of interest has been adopted for the theoretical reasons explained in section 2.6 rather than for reasons of realism. Clearly investors do form expectations of changes in interest rates and differ from each other in their expectations. For the purposes of dynamic theory and of analysis of specific market situations, the theories of sections 2 and 3 are complementary rather than competitive. The formal apparatus of section 3 will serve just as well for a non-zero expected capital gain or loss as for a zero expected value of g. Stickiness of interest rate expectations would mean that the expected value of g is a function of the rate of interest r, going down when r goes down and rising when r goes up. In addition to the rotation of the opportunity locus due to a change in r itself, there would be a further rotation in the same direction due to the accompanying change in the expected capital gain or loss. At low interest rates expectation of capital loss may push the opportunity locus into the negative quadrant, so that the optimal position is clearly no consols, all cash. At the other extreme, expectation of capital gain at high interest rates would increase sharply the slope of the opportunity locus and the frequency of no cash, all consols positions, like that of Figure 3.3. The stickier the investor's expectations, the more sensitive his demand for cash will be to changes in the rate of interest (emphasis added).”

Tobin (1969) provides more elegant, complete analysis of portfolio allocation in a general equilibrium model. The major point is equally clear in a portfolio consisting of only cash balances and a perpetuity or consol. Let g be the capital gain, r the rate of interest on the consol and r^e the expected rate of interest. The rates are expressed as proportions. The price of the consol is the inverse of the interest rate, (1+r^e). Thus, g = [(r/r^e) – 1]. The critical analysis of Tobin is that at extremely low interest rates there is only expectation of interest rate increases, that is, dr^e>0, such that there is expectation of capital losses on the consol, dg<0. Investors move into positions combining only cash and no consols. Valuations of risk financial assets would collapse in reversal of long positions in carry trades with short exposures in a flight to cash. There is no exit from a central bank created liquidity trap without risks of financial crash and another global recession. The net worth of the economy depends on interest rates. In theory, “income is generally defined as the amount a consumer unit could consume (or believe that it could) while maintaining its wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is obtained by applying a rate of return, r, to a stock of wealth, W, or Y = rW (Friedman 1957). According to a subsequent statement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption is the long-run expected yield from wealth r*W. This yield was named permanent income: Y* = r*W” (Darby 1974, 229), where * denotes permanent. The simplified relation of income and wealth can be restated as:

W = Y/r (1)

Equation (1) shows that as r goes to zero, r→0, W grows without bound, W→∞. Unconventional monetary policy lowers interest rates to increase the present value of cash flows derived from projects of firms, creating the impression of long-term increase in net worth. An attempt to reverse unconventional monetary policy necessarily causes increases in interest rates, creating the opposite perception of declining net worth. As r→∞, W = Y/r →0. There is no exit from unconventional monetary policy without increasing interest rates with resulting pain of financial crisis and adverse effects on production, investment and employment.

Inflation and unemployment in the period 1966 to 1985 is analyzed by Cochrane (2011Jan, 23) by means of a Phillips circuit joining points of inflation and unemployment. Chart VI-1B for Brazil in Pelaez (1986, 94-5) was reprinted in The Economist in the issue of Jan 17-23, 1987 as updated by the author. Cochrane (2011Jan, 23) argues that the Phillips circuit shows the weakness in Phillips curve correlation. The explanation is by a shift in aggregate supply, rise in inflation expectations or loss of anchoring. The case of Brazil in Chart VI-1B cannot be explained without taking into account the increase in the fed funds rate that reached 22.36 percent on Jul 22, 1981 (http://www.federalreserve.gov/releases/h15/data.htm) in the Volcker Fed that precipitated the stress on a foreign debt bloated by financing balance of payments deficits with bank loans in the 1970s. The loans were used in projects, many of state-owned enterprises with low present value in long gestation. The combination of the insolvency of the country because of debt higher than its ability of repayment and the huge government deficit with declining revenue as the economy contracted caused adverse expectations on inflation and the economy.  This interpretation is consistent with the case of the 24 emerging market economies analyzed by Reinhart and Rogoff (2010GTD, 4), concluding that “higher debt levels are associated with significantly higher levels of inflation in emerging markets. Median inflation more than doubles (from less than seven percent to 16 percent) as debt rises frm the low (0 to 30 percent) range to above 90 percent. Fiscal dominance is a plausible interpretation of this pattern.”

The reading of the Phillips circuits of the 1970s by Cochrane (2011Jan, 25) is doubtful about the output gap and inflation expectations:

“So, inflation is caused by ‘tightness’ and deflation by ‘slack’ in the economy. This is not just a cause and forecasting variable, it is the cause, because given ‘slack’ we apparently do not have to worry about inflation from other sources, notwithstanding the weak correlation of [Phillips circuits]. These statements [by the Fed] do mention ‘stable inflation expectations. How does the Fed know expectations are ‘stable’ and would not come unglued once people look at deficit numbers? As I read Fed statements, almost all confidence in ‘stable’ or ‘anchored’ expectations comes from the fact that we have experienced a long period of low inflation (adaptive expectations). All these analyses ignore the stagflation experience in the 1970s, in which inflation was high even with ‘slack’ markets and little ‘demand, and ‘expectations’ moved quickly. They ignore the experience of hyperinflations and currency collapses, which happen in economies well below potential.”

Yellen (2014Aug22) states that “Historically, slack has accounted for only a small portion of the fluctuations in inflation. Indeed, unusual aspects of the current recovery may have shifted the lead-lag relationship between a tightening labor market and rising inflation pressures in either direction.”

Chart VI-1B provides the tortuous Phillips Circuit of Brazil from 1963 to 1987. There were no reliable consumer price index and unemployment data in Brazil for that period. Chart VI-1B used the more reliable indicator of inflation, the wholesale price index, and idle capacity of manufacturing as a proxy of unemployment in large urban centers.

 

Chart VI1-B, Brazil, Phillips Circuit, 1963-1987

Source: ©Carlos Manuel Pelaez, O Cruzado e o Austral: Análise das Reformas Monetárias do Brasil e da Argentina. São Paulo: Editora Atlas, 1986, pages 94-5. Reprinted in: Brazil. Tomorrow’s Italy, The Economist, 17-23 January 1987, page 25.

 

Carlos M. Pelaez

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025.